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Why Do Emerging Economies Borrow Short Term?

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Listed author(s):
  • Fernando A. Broner
  • Guido Lorenzoni
  • Sergio L. Schmukler

Abstract

We argue that one reason why emerging economies borrow short term is that it is cheaper than borrowing long term. This is especially the case during crises, as in these episodes the relative cost of long-term borrowing increases. We construct a unique database of sovereign bond prices, returns, and issuances at di¤erent maturities for 11 emerging economies from 1990 to 2009 and present a set of new stylized facts. On average, these countries pay a higher risk premium on long-term than on short-term bonds. During crises, the di¤erence between the two risk premia increases and issuance shifts towards shorter maturities. To illustrate our argument, we present a simple model in which the maturity structure is the outcome of a risk sharing problem between an emerging economy subject to rollover crises and risk averse international investors.

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2012.01094.x
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 11 (2013)
Issue (Month): (01)
Pages: 67-100

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Handle: RePEc:bla:jeurec:v:11:y:2013:i::p:67-100
DOI: j.1542-4774.2012.01094.x
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Find related papers by JEL classification:
  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • F30 - International Economics - - International Finance - - - General
  • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
  • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
  • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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